Government lobbied on SMSF carveout for vacant land tax bill

The government’s Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019, currently before the Senate Economics Legislation Committee, removes deductions for costs incurred by owning vacant land unless it is being used by the owner or a related party to carry on a business.

While the draft legislation caused concern among the SMSF community when it was released late last year, the final bill contains few changes other than confirming the types of holding costs that cannot be claimed as deductions by the land owner.

Speaking to SMSF Adviser, Insyt chief executive Darren Wynen said the bill had overreached in its intent to crack down on land banking and was punishing SMSFs that were legitimately earning an income from vacant land.

“If the land [owned by an SMSF] is vacant, the principle is that there’s no deduction unless you satisfy certain conditions. You can be renting it out to an external party and deriving an income, but the bill still says there is no deduction,” Mr Wynen said.

“There is an exception if you’re able to use it in your business or that of a connected entity, but once the land is in an SMSF, the taxman says that because of the nature of an SMSF, you can’t be connected. So, if the land is deemed vacant, SMSFs miss out on the deduction regardless of what they’re doing with it.”

Mr Wynen said the measures would also apply to partially vacant blocks of land, with deductions applied proportionally depending on how much of the block was deemed vacant.

With the results of the Senate Committee’s review into the legislation due at the beginning of September, he said there was still time for the SMSF community to highlight the flaws in the bill, which contained a carve-out for APRA-regulated super funds but not SMSFs.

“If you’re a large super fund, you’re not subject to these measures, so it’s unfairly targeting — why should large corporate super funds get the advantage of being able to claim interest deductions?” he said.

“The government should be supporting SMSFs — they supported them in the last election and they are leaving them in the lurch with this measure.”

Mr Wynen said the best option for a more SMSF-friendly bill would be to extend the carve-out to SMSFs, or change the definition of a related party to match that in the SIS Act so that SMSFs would qualify for the exemptions in the bill.